Oct 01, 2010

Secret Deals May Lead to Bailouts for Defense Contractor Misconduct

This week, Blumenauer, along with Rep. Kurt Schrader (D-OR) and Sens. Ron Wyden (D-OR) and Jeff Merkley (D-OR), introduced the Accountability for Defense Contractors Act. This bill would increase transparency and accountability in defense contracting by regulating the Pentagon’s use of classified contract provisions that indemnify contractors from damage lawsuits. It would require the Secretary of Defense to notify Congress when accepting liability in excess of $1 million on behalf of a contractor. It also would prohibit indemnification in cases where the contractor acted with “gross negligence, willful misconduct, or lack of good faith” or the harm resulted from “an unusually hazardous or nuclear risk not specified in the terms of the contract and discovered on the site where the contract is performed, or that reasonably should have been discovered.”

Last year, several Oregon National Guard veterans sued KBR for knowingly exposing them to a cancer-causing substance called hexavalent chromium while protecting KBR employees who were restoring a water treatment plant in Iraq in 2003. It was discovered during the course of litigation that KBR’s Restore Iraqi Oil (RIO) contract with the U.S. Army contains a classified clause indemnifying KBR for any property damage, injury or death occurring at all KBR worksites. Similar lawsuits against KBR have been filed by current and former National Guard members from Indiana and West Virginia who were also stationed at the water treatment plant in the early months of the war. This means the Army (i.e. the taxpayer) could be hit with millions of dollars in costs and damages.

Last month, Army Secretary John McHugh refused to declassify the KBR indemnification clause in his response to Blumenauer’s inquiry, but he insisted that, apart from the RIO contract, no other Army contracts awarded to companies operating in contingency situations since 2001 contain indemnification provisions. Left unsaid, of course, is whether the other service branches and units of the Department of Defense, to say nothing of other federal agencies, are providing secret indemnity to their contractors.

“The Army considers the use of indemnification provisions only in extraordinary circumstances involving unusually hazardous risks,” McHugh wrote. He also assured Blumenauer that KBR has not yet asserted any claim—and the Army has not made any payments—under the provision.

We’re glad to see Members of Congress addressing this issue and we support the Accountability for Defense Contractors Act. But we’re not convinced that contractors need immunity for wrongdoing. We’re also still left wondering: If certain government functions require perks such as secret grants of legal immunity in order to get the private sector to perform them, why are these functions even considered suitable for outsourcing in the first place?